Crunchyroll Upgrades Anime Site to Connect Fans with Merchandise

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Much of the media world makes its money by pairing merchandise with television programs and movies. Now Web-streaming service Crunchyroll has updated its platform to improve the way it sells toys and other show-related products to fans.

Kun Gao, co-founder and CEO of Crunchyroll in San Francisco, is in New York this week to speak at the Streaming Media East conference, one of the many Internet Week New York events being held across the city. On Tuesday his company also announced it revamped its platform to update how merchandise offers tie into shows viewers watch. For example, while the ninja battles in anime series “Naruto: Shippuden” scream (seriously, there is a lot of screaming on the show) across tablets and other screens, the platform will offer up related video games, apparel, and models of the characters.

Real-time product offers have long been part of experiments in interactive television and video, but few providers have figure out a way to hit viewers with the perfect offer at the right moment, based on what they’re watching. “We’re trying to improve the contextualness of the e-commerce items we recommend,” Gao says.

Crunchyroll, founded in 2007, specializes in offering Asian media, particularly anime from Japan, Korean dramas, and other live-action content. The company also offers digital manga (a style of comic book from Japan) series online. Crunchyroll is available through Web-connected devices such as smartphones, tablets, game consoles, Roku, and Google TV.

Gao says Crunchyroll uses data and other details about the shows to make the merchandise recommendations more relevant. The shows are presented in their native languages with subtitled translations in English, Spanish, and Portuguese, which offers some perspective on what viewers are watching. “Since we have all the tracks of the subtitles, we know who is speaking, what they are saying within the show, in addition to all the metadata on the show,” he says.

Broadcasters and others in the media industry have previously tried—with mixed results—to connect viewers with merchandise relevant to what they watch. Gao says his company leverages the subtitles and other data to make product recommendations that are more contextual.

Making e-commerce pitches more closely related to the content, he says, is of great interest to the industry. “Traditionally, merchandising has been 70 to 80 percent of the revenue pie for animation,” Gao says. The remainder comes from the viewed media on television and online. “A lot more money is made on toys, figures, DVDs, trading cards, video games, apparel, and jewelry,” he says. “The show is, in a sense, an advertisement.” Anyone with a fan “Pokémon” or “Yu-Gi-Oh” at home knows these programs tie directly to collectible card games and mountains of other merchandise.

Playing cards being offered during an episode of "Naruto: Shippuden" on Crunchyroll.

Gao says Crunchyroll is an efficient way for animation companies to monetize their content. “We generate more revenue than other video platforms,” he says. “The content is available on many different places: Hulu, Netflix, and YouTube. We actually generate revenue because we are focused on animation.” Crunchyroll’s library includes 25,000 episodes, making up more than 10,000 hours of content.

The relationship between video and e-commerce, Gao says, can been deepened especially among anime fans—and also help his company branch out into other markets. “Essentially we’re layering on a next generation Home Shopping Network on top of content that people are already watching,” he says. “If we can make it work for animation, I think we’ll have a lot of expertise to do it for other content verticals.”

Some of the shows Crunchyroll streams are available in the United States through satellite and cable television, but those broadcasts are typically many months or even years behind the original airing. Gao’s company makes the content available right after its first TV run.

The company is backed by venture capital firm Venrock, angel investors, television station TV Tokyo, and digital content distributor Bitway. Some of the popular series available through the platform include the supernatural adventures of a teenager who fights evil spirits in the action show “Bleach,” and “Attack on Titan,” which Gao describes as a cross between “The Walking Dead” and “Godzilla.”

Crunchyroll got its start as a free service with user-contributed content before connecting with investors and content licensors then going freemium in 2009. Subscribers pay $7 per month for unlimited access to ad-free, high-definition content right after the original TV airing. Viewers can also watch programs for free at lower resolution with ads about one week after their initial television broadcast.

Gao says Crunchyroll sees about 8 million viewers per month with 200,000 premium subscribers. Anyone can buy merchandise through Crunchyroll; however, premium members get a discount. “Even through premium subscribers are only 2.5 percent of the total user base, they are more than half of the people who buy the relevant items,” he says.

Since premium users have already put their credit card information into the platform, Gao says offering a seamless way to purchase merchandise while watching shows can elevate both revenue streams.

Crunchyroll’s co-founders were Berkeley engineers, Gao says, who wanted to try building an online video service and initially created something similar to YouTube. Much of the video was user-contributed content from Asia that could not be accessed in the U.S., Gao says. The platform’s rising popularity, though, posed some challenges that pushed the founding team to develop a revenue model that fueled the business.

“We were maxing out our credit cards for bandwidth bills because we weren’t monetizing the site,” he says. “Bandwidth with was 20 times more expensive than it is today.”